If today’s housing market can be described as one where prices are through the roof and the supply of homes is in the basement, next year should see a modest leveling that brings a bit of relief to would-be buyers, according to real-estate data giant Zillow.
Its economists predict homebuyers will have more housing options and “a bit more affordability [and] breathing room—but only a bit” next year. There’s a few reasons why. First, higher for longer mortgage rates are becoming the norm. So some of the homeowners who locked in below-market mortgage rates during the pandemic, and have refused to sell in hopes that current rates would come down, might have to accept that that’s unlikely—and just list their homes.
“Many of those homeowners will have their eye on a home with a bigger (or no) backyard, an extra (or fewer) bedroom, or in their preferred neighborhood across town, and Zillow predicts more of these homeowners will end their holdout for lower rates and go ahead with those moves,” Zillow’s 2024 forecast released on Thursday said.
Largely because of the lock-in effect mentioned above, existing home sales have fallen to their lowest levels in more than a decade, and that, coupled with an already underbuilt housing market, has tightened inventory. The latest numbers from the National Association of Realtors showed that there’s just over a three-month supply of homes, and the median existing home sales price has risen four months in a row to reach $391,800 in October—largely because there’s not enough supply to meet demand.
With more homes on the market next year, even if the increase is only moderate, demand should level out and “[ease] upward pressure on prices,” the report predicted. With that, Zillow expects homebuying costs to flatten; its latest forecast predicts home values will fall 0.2% next year. That’s far more optimistic for buyers than some of Zillow’s previous predictions—the company has revised its 2024 home value forecast a few times, at one point forecasting that home prices would jump 6.5% between July 2023 and July 2024. Clearly, their currently predicted outcome appears significantly better for homebuyers.
“A typical homebuyer in October would have spent more than 40% of their earnings on their mortgage payment—an all-time high in Zillow data, which stretches back to the 1990s,” the report said. “While affordability will undoubtedly remain the top concern for potential homebuyers in 2024, there is reason to expect those challenges to ease just a bit.”
Home values falling 0.2% won’t dramatically improve affordability, as Zillow said, but if mortgage rates also fell, buyers could get a chance to catch up after years of rapidly rising housing prices. While Zillow called predicting mortgage rates “a nearly impossible task,” in recent weeks, mortgage rates have fallen in the wake of cooler-than-expected inflation reports.
The latest average 30-year fixed mortgage rate reading came in at 7.15%, much lower than October’s 8.03%, and Moody’s chief economist, Mark Zandi, expects to see rates settling at around 6% in the long run. Morgan Stanley economists expect mortgage rates to come down throughout next year, although they didn’t specify where they could land. Goldman Sachs strategists have a more pessimistic take, previously warning buyers to “expect mortgage rates to remain elevated for the foreseeable future, dipping to just under 7% by the end of next year.”
However, the slightly more affordable market Zillow expects next year won’t make up for the thousands of would-be homebuyers sidelined by rising prices. Zillow expects many of them to remain priced out of the market next year, meaning demand and prices for single-family rentals will continue to increase. Families who want a house with a backyard, for instance, can get that with a single-family rental if they can’t afford to buy. Renters should also have more options in the form of multifamily properties, with the current construction boom bringing in a wave of supply next year, Zillow said.
“More options for renters looking for a new place means landlords who are trying to attract tenants have more reason to compete with each other on price,” the report said. “That’s a key reason more rental listings are offering concessions.”
With rental vacancies already on the rise in many metro areas, we’ve already seen landlords offering one-time discounts or even one to three months free to attract renters, according to Redfin.